Think of a time when you had to call consumer service. How did you feel before you made the call? What about during the call, and after you hung up? Many would say we experience frustration, anger, disappointment, or confusion. Now it’s time for the big question: how do your consumers feel after talking to your company? Perhaps it’s the same feelings just mentioned? It’s time for a better way.

If you want to make the collection or legal process less painful, make it less of a process and more of a connection. There is the stereotype of the aggressive and shaming bully of a debt collector or attorney for a reason. Mary Shores changed the way we approach the consumer at our company and it has made a big impact on our clients, our consumers, and ultimately our bottom line. At Midstate Collection Solutions, we focus on making people feel good about paying their debt because we know that having a debt is a burden on both the consumer and the client; we want to be the solution. Changing the industry perception has been a vision of Mary’s for years—she is working diligently to prove that collection agencies and attorneys are not the bad guys that people make them out to be, and her innovative approach to communicating is doing just that. Within the first year of implementing this new communications strategy, our revenues increased over 33%, allowing us to collect more money from consumers while reducing lawsuits and work towards our goal of improving the industry perception!

The way we communicate with others has a significant impact on the end-result of the interaction. For example, studies have shown throughout the years that the probability of a physician being sued by a patient can be determined within the first few minutes of their interaction solely based on how they communicate with their patient. Now apply this same principle to your company. Your consumers are more likely to file a lawsuit against your company based on your communications with them and how they feel they are being treated.

What if you, too, can radically decrease the probability of lawsuits and increase your success in collections within your organization just by simply changing the way you communicate with your clients and consumers?Words That Work can do just that.

What is “Words That Work”?

Mary’s innovative three-step communications philosophy is based on psychology, neuroscience, and biochemistry. This radical system is effective because it empowers staff, creates consistency, and increases overall satisfaction.

Words That Work is comprised of 3 rules:

Stop Saying Negative Words

Start Using Words That Work

Always Say What You Can Do

Stop Saying Negative Words

We have a Do Not Say List that all employees must follow at our company. The top six words on this infamous list are: no, not, can’t, won’t, however, and unfortunately. All of these words plant giant seeds of negativity, subconsciously reinforcing a negative outcome in the situation. Another issue that falls under negative words is passive phrasing, such as “Is there any way you can pay this today?” Eliminate negative words first, and you’re well on your way towards your goals of decreasing lawsuits and increasing collections.

Start Using Words That Work

Based on psychology, neuroscience, and biochemistry, Words That Work is made of words and phrases that trigger positive or relaxing emotions taking your staff and consumers out of fight-or-flight and putting them in rest-and-digest. The sympathetic nervous system is responsible for aggression, anxiety, negative perceptions, increased attention to negative stimuli, and recall of negative experiences. When activated with Words That Work, the parasympathetic nervous system balances out that reaction by promoting growth and regeneration, building loyalty and rapport, feeling relaxing emotions, and increasing the likelihood of being open and receptive to communications.

Always Say What You Can Do

Telling the consumer what your next step is in the process sets proper expectations, builds confidence and rapport, and informs the consumer of the solution all while simply stating what the next actions are going to be. Sometimes you don’t always know what you can do in the moment, or you may need to look into the situation further before coming up with a solution. When you need more time to look into the consumer’s account or come up with a solution, be honest, and set a realistic expectation of when you will get back to them.

3 Steps to Using Words That Work

Now that you know the 3 rules of Words That Work, here’s how you apply them in your communications.

1. Validate—When you validate the consumer, it lets them know you heard and understand them. You build rapport and trust. It’s important to note that validation does not necessarily mean you agree with what it is the consumer is saying; you’re just consciously acknowledging what they’re telling you so they understand you’re actively listening to their concerns and situation./p>>

“I appreciate you sharing that with me.”

2. Plant Seeds of Happiness—By using powerful words, you assure the consumer that you are doing everything in your power to resolve their concerns.

“I can definitely resolve this problem for you.”

3. Use an Action Statement—This empowers you to remain in control of the conversation, sets proper expectations, and instills confidence in the consumer that you are going to help them.

“What I can do for you is…”

Implementing Words That Work as simple as rephrasing what most employees already say. For example, if someone is trying to schedule an appointment and there’s no availability right away, try rephrasing like this.

Stop Saying: I’m sorry—unfortunately, I don’t have an opening until next week.

Start Saying: I have great news! An appointment just became available! I can schedule you for Monday at 10 am.

Tying It All Together

Take a bit of time each day to focus on becoming aware of what you say to reduce your chances of facing litigation, improve your success in collections, and build a more positive reputation for your company and for the clients you represent. Slowly weed out negative words, replace them with Words That Work, and tell people what you can do for them. Always validate either the positive or the negative statements you’re being told. Your next step is to plant a seed of happiness and end with an action statement to present your solution to significantly improve your consumer service outcome. If you tell someone what you can do for them, they’re less likely to be upset when they can’t have things their way.

Here at Midstate Collections, we are always striving to educate, empower, and entertain you to take inspired action. It is no secret that communication is a powerful tool. Creating and delivering consistent information to consumers empowers your staff to know there is always a solution. Having access to all these resources helps your staff to feel confident and provide quality results every time. Applying Words That Work in your work will be more challenging than you may expect. You are breaking old habits and configuring new neural pathways in your brain. If you have any questions or would like any guidance at all on how to use Words That Work, Maghan Moslander, the Business Development Coordinator at Midstate Collection Solutions, would be thrilled to hear from you.

We have a free workbook resource based on this article if you are ready to start implementing Words That Work in your organization and want to complete exercises to help take you to the next level. Request your free workbook for this training by emailing Maghan Moslander at [email protected]

A few weeks ago the Cornerstone team arrived in Seattle for the ACA International Convention & Expo. It was a great time to connect with clients and friends as well as hear the latest updates for the industry. We’re sharing some of the things we learned below.

The topic of the CFPB’s future under the new administration was a major point of conversation at the ACA Convention. Although the consensus was that all the moving parts involved render projections virtually impossible, there were two recent events that were points of interest:

The Treasury released a very candid report about the CFPB and included the following points:

The CFPB’s structure renders it unaccountable

The CFPB created marketplace uncertainty by maximizing discretion

The Consumer Complaint Database lacks appropriate safeguards

The CFPB’s supervisory authority is duplicative and unnecessary

Cordray’s Remarks– 8 June, 2017

“As we evaluated the feedback we received on the proposals under consideration, one thing became clear. Writing rules to make sure debt collectors have the right information about their debts is best handled by considering solutions from first-party creditors and third-party collectors at the same time. First-party creditors like banks and other lenders create the information about the debt, and they may use it to collect the debt themselves. Or they may provide it to companies that collect the debt on their behalf or buy the debt outright. Either way, those actually collecting on the debts need to have the correct and accurate information. All of these parties must work together to ensure they are collecting the right amount of debt from the right consumer.”

If you’re interested in talking more about what we heard at the ACA Convention, feel free to reach out to us.

On May 15, the U.S. Supreme Court put to rest a theory of liability under the Fair Debt Collections Practices Act (FDCPA or Act). This has a major impact on both the credit and collections industry as well as bankruptcy practitioners who represent creditors.

The court found that “the filing of a proof of claim that is obviously time-barred is not a false, deceptive, misleading, unfair or unconscionable debt collection practice” under the FDCPA, reversing the judgment of the Eleventh Circuit.

Three things were found in this case:

State law determines whether a person has a “claim” or “right to payment” – In this case, the law of Alabama says a creditor has the right to payment of a debt even after the limitations period has expired.

A Proof of Claim is Not a Civil Lawsuit – The filing of a lawsuit to collect a debt beyond the statute of limitations is in fact an FDCPA violation.

The FDCPA and the Code serve separate purposes – With the FDCPA, the Acts work to protect consumers by preventing consumer bankruptcies in the first place. The Code creates and maintains the delicate balance of a debtor’s protections and obligations.

The courts have spent many years stretching the Act beyond what Congress had intended. The FDCPA has seen many interpretations due to a lack of regulation. This case is just another example.

The Debt Buyers Association, International (DBA) recently celebrated their 20th anniversary at their annual conference in Las Vegas, NV. We had a chance to attend the conference again this February. More than 900 people were in attendance this year (the conference hosted roughly 60 attendees in 1997).

One particular session at the conference included five past DBA presidents, who each shared their collective wisdom by telling tales of how the debt buying industry has moved from a “cowboy culture” in the early days to a “consumer friendly” culture in recent days.In the early days, it required great trust in the people you were working with.The industry was desperate for an organization to become the standard bearer.This is the role that the DBA has sought to provide over the years.

The debt buying industry has moved from a cowboy culture to a consumer friendly culture.

Throughout this session, each of the previous presidents helped attendees to understand that in the early days (circa August of 1996) debt buying was just an experiment done by a few banks.Debt purchasing didn’t initially fit into any category as a brand new and fast-growing industry.As time went on, it became very necessary to legitimize the practices of debt purchasing.There was a need for a credibility standard in the industry as well.Today, the membership of debt buyers has grown into a comprehensive industry.

The DBA has helped educate and advocate with state and federal regulators who have also grown in their understanding of the growing industry.The DBA has worked over the last 20 years to have a seat at the table of decision makers to help shape the industry.

The Trump administration takes aim at rolling back regulations, such as revisiting the Dodd-Frank legislation. It is possible that Federal regulations may be reduced.The state regulations, however, will likely stand firm, often picking up where Federal regulations may be letting go.The DBA collectively remains cautiously optimistic that their relationships that have been built over 20 years will continue to provide the industry standard of education and advocacy.

While the DBA celebrated their 20th annual conference, we also celebrate our 20th year as a company in the debt collection and debt buying industry.As the industry has grown, we’ve had the privilege of helping hundreds of companies manage their licensing, bonds and insurance. Let us know how we can help you!

The story our entire industry is keeping our eyes on: President Donald Trump is considering a replacement for Richard Cordray, the current director of the Consumer Financial Protection Bureau (CFPB).

This is huge news for our industry, as Trump is considering and met with former Rep. Randy Neugebauer as the replacement. Neugebauer has recently been very vocal in his criticism of the CFPB’s actions and its current structure.

“Unfortunately, the CFPB’s efforts represent yet another example of a Washington-knows-best mentality. Using behavioral economics, which by its very principles says policymakers should make choices for unsophisticated individuals, the CFPB has set down a road of paternalistic erosion of consumer product choice and access to credit.” – Randy Neugebauer

The CFPB is currently regulating our industry out of business. But there is a lot of optimism that new leadership will understand the value that our industry brings to the overall economy and regulates from that perspective.

Donald Trump’s ability to replace Cordray and appoint a new CFPB director might hinge on the results of the PHH v. CFPB case rehearing. The rehearing is being handled by the D.C. Circuit Court of Appeals, which will have to decide whether to uphold the October ruling that CFPB is unconstitutionally structured. If the court does uphold the original ruling, Trump will be able to remove Cordray at will and the bureau could be required to restructure and/or lose its status as an independent agency.

This gives our industry a huge sense of optimism when it comes to our future.

Is your agency planning on hiring more in 2017? How do you ensure you’ve found the right person for the job?

A recent ACA International survey showed what specific characteristics and skills collection agencies are looking for in potential candidates. These are characteristics of a debt collector that’s going to succeed at their job and add value to your business.

Top 4 characteristics of an effective debt collector:

Integrity

Honesty

Patience

Politeness

Other important skills listed were active listening and service orientation. All very important when it comes to the collections industry.

The CFPB is stepping up their scrutiny of companies in the ARM industry in order to find non-compliance. Integrity, honesty, patience and politeness are keys to building a relationship with the consumer in order to work out a payment plan, all without appearing manipulative, unfair or deceptive.

Set yourself (and your team!) up for success this year. Make sure your new hires possess these characteristics, and you’ll be closer to finding the right additions to your team.

Are you wondering what the future of debt buying will look like and what you need to do to prepare? Mike Gibb, Administrator of AccountsRecovery.net, wrote a compelling and provocative article on July 26: How Debt Buying Will Change in the Next Five Years. The debt buying segment of the ARM industry has faced the most scrutiny in the last five years and it’s a safe bet that the pressure isn’t going to let up for the foreseeable future.

Costs of entry will continue to rise and there will be an even greater reliance on technology to drive efficiencies. Heightened security concerns and even more stringent compliance measures will continue to challenge the industry. Some traditional debt buyers will have difficulty adapting to these requirements, leading to further consolidation and sophistication.

As cybercrime becomes an even greater issue, collection companies are coming under increased scrutiny by their clients. Creditors are forwarding sensitive personally identifiable information (PII) to their collection partners, entrusting them with safeguarding this sensitive data about their customers. And, in the case of hospitals and other healthcare providers, highly confidential information about their patients’ medical conditions is potentially at risk.

How can you become better prepared? Experian has recommended 10 steps that can act as a starting point in beefing up your data protection to help protect your company from cyber threats.

Creditors and healthcare providers are also increasingly requiring that their collection partners obtain cyber liability insurance coverage to help protect them from unauthorized breaches of data while in the possession of the collection entity. Many collection companies already rely on Cornerstone Support (through its subsidiary, Integrity First Insurance, Inc.) for their E&O insurance but may not be aware that we are a leading provider of cyber liability coverage for the ARM industry.

Call Ben Johnson at (678) 740-0491 or send him a request for more information: [email protected]

The National List of Attorneys has partnered with Cornerstone Support to do a blog series on licensing. This is the third blog in that series.

Cornerstone Support receives frequent requests from agencies in need of assistance related to their state collection licenses. While requests come from agencies with an array of licensing concerns, one we often assist with is branch licensing compliance.

Whether neglected or simply misunderstood, licensing branch locations continues to be an area in need of improvement. Although incorrect, it is not uncommon to find collection agencies who have licensed the organization on an entity level with little or no regard to the physical location(s) of the respective call centers/collectors.

State Laws Vary

Each state has the right to enact its own set of collection laws and requirements. Most jurisdictions have very different statutory regulations and application requirements. Certain jurisdictions require that all locations from which debtors are communicated with maintain a separate branch license. The branch license can be as involved as the original debt collection license application or as uncomplicated as a letter notifying the appropriate jurisdiction of the branch location.

Unlicensed Collection Activity Is Costly

It’s important to note that any communication with a debtor from an unlicensed branch location is considered unlicensed collection activity. It carries all of the same consequences of unlicensed collection activity to both the agency and the organizations they represent (creditors and debt buyers). This can prove costly, not only to collection agencies, but also to the creditors that they represent.

For a summary of the jurisdictions that require some level of branch licensing, contact Cornerstone Support today. Our highly educated experts can confirm where you may or may not need licensing for your branch.

Call us at 888-445-8660 or email us at [email protected]to discuss the details of your business and see how Cornerstone can support your overall compliance strategy.

The U.S. Court of Appeals for the Third Circuit reaffirmed a federal district court ruling that preserves the Federal Trade Commission’s authority to take action against companies that fail to protect consumer information on Monday.

In June 2012, the FTC filed suit against global hospitality company Wyndham Worldwide Corporation and three of its subsidiaries for alleged data security failures that led to three data breaches at Wyndham hotels in less than two years. The FTC alleged that these failures led to fraudulent charges on consumers’ accounts, millions of dollars in fraud loss, and the export of hundreds of thousands of consumers’ payment card account information to an Internet domain address registered in Russia, according to a FTC news release.

“Today’s Third Circuit Court of Appeals decision reaffirms the FTC’s authority to hold companies accountable for failing to safeguard consumer data,” said FTC Chairwoman Edith Ramirez in the news release. “It is not only appropriate, but critical, that the FTC has the ability to take action on behalf of consumers when companies fail to take reasonable steps to secure sensitive consumer information.”

According to the FTC, it can file charges under Section 5 of the FTC Act, which bars unfair and deceptive acts and practices in or affecting commerce. In addition to the FTC Act, the agency also enforces other federal laws relating to consumers’ privacy and security.

ACA International has resources for companies to learn about keeping their data security measures up-to-date.

Cornerstone is a proud founding supporter of the Compliance Professionals Forum (CPF). CPF is a membership organization that helps compliance professionals navigate the complex and fast changing world of regulatory oversight. If you have responsibility for compliance related to communicating with consumers about a debt, the CPF is your compass. Anyone can become a member to access the tools, resources, and community dedicated to help you succeed in the complicated and confusing world of compliance.

As part of their service, CPF hosts a number of regional meetings which allow you to interact in-person with fellow compliance professionals. Meetings take place over 1 day and typically run from 10 am – 3 pm; They are located within a short drive in order to minimize cost and time out of the office, but allow you to develop relationships with a broader set of colleagues. Regional Peer Meetings are larger forums than monthly CPF phone-based Peer Groups, but at approximately 20-30 people, are still small enough to provide the intimacy required for in-depth conversation.

Because of the Founding Supporters — TransUnion, Ontario Systems, and of course, Cornerstone — CPF is able to offer these meetings at no charge to compliance professionals!

Unlike traditional conferences, Peer Meetings are focused primarily on peer conversation; it’s not a passive learning event. Facilitated by one of the CPF Directors of Compliance Education, Regional Peer Meetings allow you to discuss multiple topics. Those who register to attend will have the opportunity to contribute to the agenda, but sample topics may include:

How to involve your Board of Directors in Compliance? How do you manage your call monitoring program and what is your policy? How do you get a new hire in compliance up to speed quickly? How do you organize your Policies and Procedures document? How do you deploy new policies? How is Operations (or other departments) trained and tested on new policies? Am I missing key policies? How do you regulate the use of social media in your organization? How do I best stay on top of changes in state laws? How do I navigate through a client audit? How do I navigate through a regulator audit?

These meetings are a safe and confidential space to discuss critical compliance issues. The goal is to strengthen the industry as a whole. While general best practices will be developed and shared with the group, specifics from your organizations are not required and are not to leave the group itself. There will be no press, and no regulators at these meetings, and discussions will not be recorded.

There is no exhibit hall at Regional Peer Meetings. While there may be up to 2-3 service providers who help to underwrite the session, attendees from these firms know that they are present to learn and to contribute (service providers often have great insight to add, as they’ve observed the issues you face at many firms as opposed to just one), not to sell.

It looks like Cornerstone was a huge hit at the 2015 ACA International Convention & Expo! We had a great time seeing old faces and meeting new. Boston treated us very well and Ben even got a baseball game in at the historic Fenway Park*. We can’t wait to see you again next year, ACA!

*Correction, Ben’s tickets are for next Monday. About a week late, but we did make it to the convention on the right date!

Cornerstone has landed in Boston! We’re so excited to attend this years’ ACA International Convention & Expo. Cornerstone has 3 of our very best, live on site to answer any of your questions, help you by conducting a free licensing assessment for your business, and share important and exclusive information on our newest E&O offering!

Stop by the Boston Sheraton and say hi to our Cornerstone family, Christy Y. Barger, Ben Johnson, and Joel Milne. We are so excited to see what services we have that can make your business and life run more smoothly and what services you’d like, but can’t seem to find on the market today. Our customers are part of our Cornerstone family and we want to be sure we’re giving you exactly what you want and need from the best and most comprehensive licencing and insurance company in the collection industry!

Mike Ginsberg, of Kaulkin Ginsberg, recently announced a new service for companies and individuals in the ARM industry. KG Prime. He wrote an article for insideARM explaining the service and its benefits.

A Call to Action for Accounts Receivable Management Firms

I am personally calling on the owners and executives of collection agencies, collection law firms, debt buyers, tech vendors and other accounts receivable management (ARM) companies tasked with making critical decisions about profitable expansion. It is time to take action.

In light of vast regulatory changes, client pressures, escalating operating costs and lackluster economic recovery since the Great Recession, it is critical that decision makers like you are accessing relevant and timely information about the market that we service.

I am proud to announce the launch of KG Prime; a distinctive, member-only information service designed exclusively for the leaders of accounts receivable management (ARM) firms. Members will get the exclusive benefits of the following offerings:

Market Intelligence – Kaulkin Ginsberg is researching particular market segments within accounts receivable management and we will provide KG Prime members market intelligence reports. Not only will members receive access to the research to share with their staff, they will also have a say in future research topics.

Bi-Annual Industry Review – We will provide KG Prime members with a written bi-annual review covering critical topics impacting the ARM industry, such as macroeconomic factors, developing market trends, regulatory compliance, mergers and acquisitions, and our predictions for the industry. A copy of our latest industry compilation, The Accounts Receivable Management Review: Opportunities Abound will be sent to you free of charge once you join.

Leadership Surveys – Members will be required to participate in regular surveys and polls that our experts conduct to collect, analyze, and interpret leadership perception on the most pressing trends, issues, and advancements impacting our industry. We will not infringe upon anyone’s confidential information. We will exclusively share aggregated results with KG Prime members, and you will have a voice in future topics.

Interactive Quarterly Webinars – We will host quarterly webinars that will only be accessible to Prime members. We will address current events impacting the ARM industry and conduct an open Q&A session with participants.

Over time, we will find ways to expand this resource with the goals of continuously gathering critical and relevant market data. We value your participation and will listen to your suggestions. As trusted advisors to the ARM industry for nearly 25 years, Kaulkin Ginsberg understands the value of having the most up-to-date industry data when it comes to making critical business decisions. We are the only advisory firm to consistently develop market intelligence designed to support strategic business decisions. Through KG Prime, we are now providing this information to you and your company on an exclusive basis.

Our goal is to create a community to share essential and timely information among the key decision-makers in the ARM industry. We hope you will join us in this new endeavor.

If you already signed up for KG Prime, I thank you. Your participation will only enhance the data we are able to provide. If you haven’t signed up already please email me at [email protected] with the words “I’m interested” in the subject line and I will get you started. Thank you.

In recent months, we have spoken with an alarming number of collection agencies and debt buyers who bought (or nearly bought) E&O policies based on questionable advice from their insurance agent. Incredibly, some of these insurance agents were with companies who claim to specialize in coverage for the ARM industry and advertise extensively in industry publications.

Here are a few examples:

After binding a new E&O policy last month, one debt buyer realized that they were sold a policy covering third-party/contingency collections only. Cornerstone helped them cancel and find new coverage, but the agent who sold them the wrong policy still insisted on charging them the taxes for the canceled coverage.

In another recent incident, a third-party collector received a quote that was more expensive and had inferior coverage to their current policy. The other insurance agent pushed them to bind the quote without pointing out some very significant coverage exclusions. Fortunately, they consulted Cornerstone and kept the better coverage at a better price.

Numerous collectors and debt buyers have found themselves in a bind when their current insurance carrier non-renewed their account, but Cornerstone was able to help by shopping the entire marketplace for the best coverage options.

Cornerstone has built a reputation as a trusted vendor to the ARM industry, helping our clients with licensing and insurance needs. This is all we do, and we would never jeopardize our reputation in order to make a few quick dollars on an insurance policy.

It is important to use an insurance agent who understands your business and can communicate your needs clearly to the insurance carriers. It is also critical to use an agent who works with multiple insurance companies to give you options and keep you apprised of coverage changes that can impact your bottom line.

Call us at 888.445.8660 or email to [email protected] to discuss the details of your business and see how Cornerstone can support your overall compliance strategy.

Fingerprints, smudges, bug guts, and even dog-slobber are all familiar hallmarks of dirty windows. But what about bar codes? Or a corporate logo? Words, letters, or numbers? Ever see these later items obscure your window? If not, then maybe you are not loo
king at your own collection letters. Consumers and courts are peering through your windows – your envelope windows. Are they clean? The Third Circuit Court of Appeals recently did some Spring window cleaning in a case entitled Douglass v. Convergent Outsourcing, 765 F.3d 299 (3d Cir. Pa. 2014). The Court did not miss any spots.

In Douglass, a collector used a window envelope to send a dunning letter. The letter contained more than the consumer’s name and address on the portion of the letter visible through the window, including a post office bar code, this string of characters above the consumer’s name: “R-xxxx-5459-R241,” and a quick response (“QR”) code, which, when scanned with a smart phone revealed all the foregoing information plus the balance of the consumer’s account. The evidence characterized the string of characters as an “account number,” but not the one assigned by the original creditor. The consumer sued the collector alleging a violation of 1692f(8) which prohibits “using any language or symbol, other than the debt collector’s address, on any envelope. . .”

Analyzing the statute’s prohibition, the Court recognized the need to look beyond its text. Interpreting it literally would create the absurd result of prohibiting the consumer’s name or address, since the statute prohibits “any” language or symbol other than the debt collector’s address. Acknowledging the “benign language” exception applied by other Courts, the Third Circuit quickly concluded that the consumer’s “account number” is not “benign.” Instead, the Court explains that making an account number visible through an envelope window is the very type of disclosure by a debt collector that “implicates a core concern animating the FDCPA – the invasion of privacy.” Public disclosure of the number raises privacy concerns and could be used to expose a consumer’s “financial predicament.” For these reasons the “account number” visible through the envelope is not “benign” language otherwise permitted by the FDCPA and the lower court was wrong to have granted summary judgment in favor of the collector. The Third Circuit reversed the lower court’s decision and remanded the case for further proceedings.

Collectors located in the Third Circuit take heed, your courts do not like dirty windows. Collectors should get out their elbow grease and start scrubbing – clean those windows! Any letters, numbers, or symbols that could be characterized (or mischaracterized!) as a consumer’s account number should be carefully examined for compliance with the prohibitions of 1692f(8). Unlike polite dinner guests who pretend not to see your smudges to spare you the embarrassment, consumers and courts who find dirt on your windows will make you pay a heavy price. Clean them up!

In March of 2015, the CFPB filed a civil action against a host of defendants. Caught up in this legal net were several alleged debt collection agencies, a host of payment processors, and a technology vendor.

The CFPB alleges that “debt collectors” engaged in schemes to defraud consumers by collecting from them debts

that, for the most part, didn’t exist at all. These companies, according to the CFPB, were aided and abetted by their

payment processors and the technology vendor, and that their success in defrauding consumers was heavily accessorized by these additional defendants.

The very, very slim good news: as of now, this is just a filed civil action. Nothing, yet, has come of this; the CFPB hasn’t made any express rules.

But even though nothing has come of this, that doesn’t mean we shouldn’t pay attention to the direction the CFPB is directing its efforts.

Specifically, this latest civil action highlights the CFPB’s thinking about vicarious liability. That shouldn’t be a new term to anyone in the debt industry; it’s often used to suggest that collection agencies need to make sure that their vendors are as compliant as they are. What’s new, and what makes this latest action from the CFPB so important, is the suggestion that it’s actually a full circle: collection agencies are responsible for their vendors, and vendors are responsible for their collection agency clients.

This is made most explicit with regards to the payment processors mentioned in the suit. Again and again, the CFPB points out that these payment processors had policies and procedures in place that explicitly forbade them from working with collection agencies — which is tough to defend when you’re a payment processor with that policy doing business with debt collectors.

Additionally, the CFPB held the technology vendor — in this case, a telephone services provider — liable for not stopping a collection agency from broadcasting a non-compliant message.

Again, it’s too early to know exactly what the ramifications of all of this will be. However, what we can say is this: compliance departments in particular need to be working on plans not only for auditing their third-party vendors; they need to have a plan in place for being audited by vendors in return. The CFPB literally sees the industry as a cohesive whole, and not discrete players. We’re all in this together — sometimes, uncomfortably so.

Mike Bevel is Director of Education for the Compliance Professionals Forum, a membership organization that seeks to provide guidance, support, and best practices to those tasked with compliance functions in their organization. Visit www.compliancePF.com for more information.

Changes to the ownership structure of a licensed collection agency occur for a variety of reasons and are a regular part of the corporate life cycle. Unfortunately, the statutory regulations for the majority of jurisdictions prohibit the transfer of debt collection licenses. Furthermore, the inflexible language of the provisions in almost all instances does not allow for an interim or transitional license, resulting in a gap period during which the ownership structure will have changed, but the new licenses will not have been processed. While the significance of the change and structure of the transaction are factors that help determine the specific action necessary, some level of re-licensing is almost always required. The following will address the specific action necessary for the most common types of transactions.

Stock Transaction

While in most situations a buyer would prefer an asset transaction, there are benefits to a stock transaction with respect to the individual state licensing requirements. Most notable, corporate registrations required as a prerequisite to obtaining state debt collection licenses are not affected in the event of a stock transaction – they are transferred seamlessly to the buyer, saving valuable time and money.

Unfortunately, the same is not true for state debt collection licenses. Whether it is a stock sale or recapitalization, if the equity positions on the balance sheet of the entity holding the debt collection license change by more than 50% then the license is immediately invalid in almost all instances. The entity must submit new license applications to the various jurisdictions for subsequent review and approval. The answers to the following questions will help in determining your re-licensing strategy:

What is the quickest way to obtain the required state debt collection licenses lost in the stock transaction?

Complete the required license applications prior to consummating the transaction and submit them to their respective jurisdictions immediately following the closing. This simple action will significantly decrease the span of time in which you are without the required state licenses. It will also have a positive impact on the way state regulators view the new regime…the longer the gap period between closing and submitting new license applications, the harder the questions you may have to answer.

Will you continue to collect from debtors in those states where the license is now invalid and it is technically unlawful to continue operations until the new license is approved?

While holding accounts in those states until the new license is obtained is the only way to fully mitigate any risk associated with unlicensed collection activity it may cost you clients and ultimately prove impractical. As such, the following are steps that one can take to minimize those risks:

As discussed above, complete the required license applications prior to consummating the transaction and submit them to their respective jurisdictions immediately following the closing.

Do not announce the transaction if possible until the new licenses are approved. While there is generally a desire on the buyer’s part to immediately announce the transaction, keeping the deal quiet will minimize exposure to frivolous lawsuits from predatory attorneys aware of the inflexibility in the change of control provisions.

Be conscious of the fact that you are operating without a license and impress upon your staff and collectors the importance of their good behavior. Please note that any instruction out of the ordinary could be used one day by a plaintiff’s attorney in a lawsuit as proof of willful or malicious wrongdoing. In that regard, it is important to provide instruction in such a manner that does not imply any past or future fault. Please note that as the change in equity for a proposed transaction dips below 50% the number of jurisdictions where a full re-licensing effort is required declines significantly.

Key Point:

The state license applications ask for varying degrees of information related to the ownership of the entity being licensed. However, in almost every instance the applications do not request information beyond the direct owners of the entity being licensed (corporate or individual owners). If you are starting an agency and wish to avoid the licensing issues related to selling the stock of your agency you should consider setting up a holding company to own 100% of the stock of the entity that you will be licensing. Selling the stock (any percentage) of the holding company would not change the equity position on the balance sheet of the licensed entity (owned 100% by the holding company) and there would be no need in most instances to re-license.

Asset Transaction

In an asset transaction, the seller retains ownership of the corporate entity and is generally responsible for unwinding it appropriately. The buyer must either create a new corporate entity or use an existing corporate entity for the transaction. While there are a number of reasons why a buyer would prefer an asset transaction, this deal structure creates a number of transition issues with respect to licensing. The following are a few such issues and recommendations for dealing with them:

Both the corporate registrations and debt collection licenses are tied to the corporate entity and cannot be transferred to a new corporate entity set up by the buyer. Unless the buyer has an existing licensed collection agency in which to roll the purchased assets, new corporate registrations and debt collection licenses would need to be obtained.

Recommendation: Obtain the appropriate corporate registrations and debt collection licenses prior to closing (it will take no less than six months to fully license the new corporate entity). If this is not possible then the recommendations for re-licensing and business conduct during the “gap” period discussed for a stock transaction above would be relevant to help minimize the exposure related to collecting without a license. Please note that setting up the holding company structure discussed above at this point would provide more flexibility for any future divestiture.

The desired corporate name of the post transaction agency can also create a transition issue with respect to licensing. There is oftentimes some tangible value associated with the corporate name of the acquired business. As such, it is not uncommon for the new corporate entity to do business under the same name as the seller has historically used. In fact, the rights to the name and any collateral material or other intellectual property are generally included in the definitive asset purchase agreement. Unfortunately, the states do not generally allow multiple corporate entities to operate using the same or similar names. As such, the new corporate entity cannot register to do business and then obtain the necessary debt collection licenses in the same or similar name to the name already taken by the seller.

Recommendation: Do not wait until the seller’s existing corporate entity has either been dissolved or the name has been changed. The goal should be to minimize the period of time in which you are not appropriately licensed and the most laborious and time consuming step in the process is obtaining the debt collection licenses for the new corporate entity.

Proceed with obtaining the required corporate registrations and debt collection licenses under an available name prior to closing.

Prepare the paperwork required to request the name change of the seller’s corporate entity so that they are ready to be submitted to the various jurisdictions at closing. It should be noted that some buyers and sellers choose to dissolve the seller’s corporate entity at this time instead of simply requesting a name change. While this strategy saves a step in the process it normally results in a much longer period in which the new corporate entity is not appropriately licensed.

Submit the requests to change the name of the new corporate entity to the ultimate name in which the buyer intends to do business as the name becomes available in the various jurisdictions.

Summary:

Changes to the ownership structure of a licensed collection agency occur for a variety of reasons and are a regular part of the corporate life cycle. Dealing with the licensing issues surrounding them should not be taken lightly. One should fully understand the impact that the structure of a proposed transaction has on licensing and develop a strategy to minimize any related exposure prior to closing a transaction. Cornerstone Support has established the reputation as the premier licensing service provider to the collection industry. We understand the particular nuances of licensing all types of collection agencies and in all types of situations. We are professionally staffed and trained to help you navigate through the gauntlet of regulations that is not only confusing, but can prove costly if misunderstood or neglected.

Call us at (888) 445-8660 or email us at [email protected] to discuss the details of your business and see how Cornerstone can support your overall compliance strategy.

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